Gross Profit Constituents, Business Economics Assignment Help

Gross Profit Constituents

1. Reward of the factors of production supplied by the entrepreneur: normally entrepreneur uses factors of production belonging to him. For example, he may supply his own capital or land. The land interest in these forms of a part of gross profit. Similarly entrepreneur may work as manager also and the salary for this works forms a profit. According to Samuelson, "much of what is ordinary called profit is nothing but interest, rent and wages under a different name, implicit interest; implicit rent, implicit wages are the name economists give to this part of profit, i.e. to the earnings of self-used factors.

2. Maintenance charges: in every production line fixed assets and equipments like machines and buildings are used. Gross profit includes maintenance cost and insurance charges.

3. Personal profits: personal profit is of two kinds: (a) Monopoly profit: if the output of any commodity is under the sole of an entrepreneur, he earns extra income which is a part of his gross profit. Monopoly power arises out of licenses, combination. Monopolists earns extra income by limiting supply and crediting artificial patents, copy-rights, secret processes, ownership of scarce resources and trade scarcity. According Samuelson monopoly profits are attributable to contrived scarcities. (b) Windfall profits: windfall profits are unexpected profits due to sudden rise in prices which at times occur due to war inflation etc.

4. Profits from innovation: Schumpeter used the term innovation to mean introduction of a new product a new process or a new market. The first gets a supernormal profit which continues till the process, or the market becomes common to all.

5. Profit from product differentiation: when a product is successfully differentiated from other similar products by advertisements or otherwise it yields additional income is a part of gross profits.